the existing fixed rate model for agency-backed pools. The new version of the model incorporates what the company perceives to be a structural change in the forces that drive prepayments.
The new model produces a significantly improved fit to the 2001 prepayment experience than the earlier version. The model retains the home price effect variables that the firm added to its models last year and also incorporates a change to the interest rate incentive variable that provides a better fit with borrower economics in extremely low interest rate environments.
Company founder and president Andrew Davidson said, "This release reflects the largest change in our prepayment model in the ten-year history of the company. Changes in the housing markets and the mortgage origination process have
produced borrowers who are much more likely to prepay for a given level of incentive."
In addition, in v4.3.3 of the model, Andrew Davidson & Co., Inc. introduces a new agency hybrid ARM prepayment model for 3-1, 5-1, 7-1 and 10-1 hybrids, based entirely on hybrid performance data. The hybrid model has been completely
revamped as a result of the firmâs ability to obtain 6-7 years of actual historical prepayment data for hybrid ARMs.
The incorporation of this data into the model has led to significant improvements in actual versus forecasted prepayment speeds. More information about changes to the model is available at the companyâs website and in the attached research article.
All current clients of the company will be sent this new version over the next several days. Other firms may receive a trial version of the model by contacting Andrew Davidson & Co., Inc. directly.
Andrew Davidson & Co., Inc. provides advice and analysis for fixed income investment analysis, with particular emphasis on mortgage and asset-backed securities. Their VectorsTM analytics library currently offers prepayment models for fixed and adjustable rate mortgages, prepayment models for
asset-backed securities, option-adjusted valuation and risk management tools for MBS, ABS, and CMOs. The company combines decades of Wall Street and investment management experience with the most advanced modeling techniques to
produce informed, effective consulting services and analytical tools.